Combining Fundamental And Technical Analysis

Usually, traders will fall strictly into one of two camps: fundamental traders and technical traders.

Fundamental traders get into positions mainly based on the background of the specific market(s); earnings, news, product releases, CEOs, balance sheets etc. This often means that fundamental traders are less concerned with when they buy or sell, but more concerned with what they buy or sell. If fundamentals line up with their strategy, they act (buy or sell), but are not specific about entering or exiting their positions at certain prices. For example, a fundamental trader may be tracking the earnings report for a particular stock, will wait for the news to come out, interpret that the stock is likely to go up, and then buy the stock at whatever price is happens to be at the moment they go to buy it.

Technical traders get into positions usually based on the technical movement and statistics of a market. They will look at elements like software, indicators, and candlestick patterns. The typical approach of a technical trader means they care less about what they buy or sell, and what’s going on behind the scenes, and are concerned more with buying or selling at specific prices, intending to time the market to increase probability and profit margin, whilst reducing risk. For example, a technical trader may be looking to enter a trade of any market on their watchlist when the price of the market comes into a Fibonacci retracement level, or if 2 moving average lines cross each other. This means they’re getting into the market at specific prices, timing it strictly, but they’ll apply that same strategy to any market, perhaps not even being aware of the fundamental information of that market.

There are successful “purists” on both sides; fundamental traders that do well, and technical traders that do well, without applying anything from the other group. In general, if something is working for you, there’s no need to change it. However, if a trader was looking to improve their results, what if they were to take a more holistic approach and therefore were able to increase their probabilities?  By combining focus on what they buy or sell, as well as when to buy or sell it, this could be an approach that increases likelihood of profits.

For example, at TRADDICTIV, we mainly use apps and technology to guide us in our trading, mainly using AutoUFOs® to highlight to us where lots of buyers and sellers are likely to be (between certain price points), therefore being able to be strict on when we buy and sell too. If a UFO trader were to apply this methodology to a stock, futures market, or currency pair that also has fundamentals in it’s favour to the up or downside, it increases the likelihood of many buyers or sellers at the same price/time. Take this example of trading the EURUSD currency pair:

News coming out, which may suggest a rise in the EUR:

Source: FXStreet

Buy UFO appearing at the same time (the green horizontal lines, showing buyers between those 2 lines).

Source: AutoUFOs® applied to TradingView

A UFO trader would wait for price to return to 1.1414 (the top of the green UFO) and buy at that price, but in this case, they are also backed up by fundamental information which suggests a rise of the price of EUR. In this case, price did return to the UFO and rose from there, even creating more buyers as it continued to rise:

Source: AutoUFOs® applied to TradingView

This is a great example of combining forces in the markets, using both fundamental and technical analysis to increase probabilities that your trade works out.

Go to www.tradewithufos.com/becky to understand more about our apps and courses, as well as free resources that can help you with your trading.

Becky Hayman
TRADDICTIV·Team